There is No Test Bank for Chapter 12

There is No Test Bank for Chapter 12 © 2010 Flat World Knowledge, Inc. 1 Introduction to Economic Analysis

Chapter 1: What is Economics?

Test Bank

• Economics studies
• the allocation of scarce resources among people.
• the allocation of unlimited resources among people.
• reasons why people act in selfish ways.
• all of the above.

Answer: a

• According to market theory, the primary factor that determines consumer behavior in

markets is

• convenience.
• quality.
• price.
• environmental impact.

Answer: c

• Which of the following statements involves normative analysis?
• Consumers buy more t-shirts as the price of t-shirts fall.
• Producers sell more t-shirts as the price of t-shirts rises.
• T-shirts sold in the United States should be produced in the United States.
• A tax on imported t-shirts will most likely decrease the quantity of imported t-

shirts sold.

Answer: c

(Introduction to Economic Analysis v. 1.0 by Preston McAfee, Tracy Lewis) (Test Bank all Chapters) 1 / 4

There is No Test Bank for Chapter 12 © 2010 Flat World Knowledge, Inc. 2

• Which of the following statements involves positive analysis?
• Minimum wages should be increased to decrease the poverty rate.
• An increase in minimum wages in China would lead to increases in the price of

goods imported from China.

• The minimum wage should be increased every year to account for the effects of

inflation.

• Minimum wages are important policies because of the decreased inequality in

the distribution of income.

Answer: b

Please use the following information to answer questions 5–10. Suppose you are charged with deciding whether or not to build a new swimming pool complex in your hometown.If you decide against the pool, the property will be sold to an apartment complex for

overflow parking. You are given the following information:

Monetized value of the parking lot = $50,000 Monetized value of the pool = $450,000 Direct cost of building the pool = $60,000 Direct cost of maintaining the pool over time = $200,000 Direct cost of the parking lot = $20,000 (no maintenance over time)

• The opportunity cost of building the pool is
• $30,000.
• $50,000.
• $260,000.
• $450,000. 2 / 4

There is No Test Bank for Chapter 12 © 2010 Flat World Knowledge, Inc. 3 Answer = a

• The opportunity cost of building the parking lot is
• $50,000.
• $60,000.
• $140,000.
• $450,000.

Answer = c

• The total cost of building the parking lot is
• $20,000.
• $70,000.
• $160,000.
• none of the above.

Answer: c

• Using cost benefit analysis, your recommendation would be to build
• the pool.
• the parking lot.
• both the pool and the parking lot.
• neither the pool nor the parking lot.

Answer: a

• The total cost of building the pool is
• $60,000.
• $260,000.
• $290,000. 3 / 4

There is No Test Bank for Chapter 12 © 2010 Flat World Knowledge, Inc. 4

• none of the above.

Answer: c

• The net benefit of building the pool is
• $160,000.
• $190,000.
• $310,000.
• none of the above.

Answer: a

• Opportunity cost is defined as the
• total cost of using resources in some productive way.
• marginal cost of producing one more unit of a good or service.
• value that one forgoes in using resources in one productive way rather than at

the next best alternative use.

• sunk costs, or costs that cannot be retrieved if a decision is changed.

Answer: c

• Suppose that Betty is willing to pay no more than $10 for a lottery ticket that has a

50% chance of paying off $100 and a 50% chance of paying off nothing. Betty’s certainty equivalent for this gamble is

• $10.
• $40.
• $50.
• $100.

Answer: a

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